The reality of publishing economics has changed for the big players

A veteran agent who was formerly a publisher confirmed a point for me about how trade publishing has changed over the past two decades, particularly for the big houses. This challenges a fundamental tenet of my father’s understanding of the business. (And that’s the still the source of most of mine.) I had long suspected this gap had opened up between “then” and “now”; it was really great to have it confirmed by a smart and experienced industry player.

One of the things that I took from my father’s experience — he was active in publishing starting in the late 1940s — was that just about every book issued by a major publisher recovered its direct costs and contributed some margin. There were really only two ways a book could fail to recover its costs:

1. if the advance paid to the author was excessive, or

2. if the quantity of the first printing far exceeded the advance copy laydown.

In other words, books near the bottom of the list didn’t actually “lose” money; they just didn’t make much as long as the publisher avoided being too generous with the advance or overly optimistic about what they printed. (Actually, overprinting was and is not as often driven by optimism as by trying to achieve a unit cost that looks acceptable, which is a different standard fallacy of publishing thinking.)

The insight that just about every book contributed to overhead and profit was obscured by the common practice of doing “title P&Ls” that assigned each book a share of company overheads. Whatever that number was, when it was calculated into the mix it reduced the contribution of each sale and showed many books to be “unprofitable”. That led publishers to a misunderstanding: perhaps they could make more money doing fewer books, if only they could pick them a little bit better. Trying to do that, of course, raised the overhead, which was neither the objective nor any help in making money.

(Raised the overhead? I can hear some people asking…Yes, two ways. One is that publishing fewer books would mean that each one now had to cover a larger piece of the overhead. The other is that being “more careful” about acquisition implies more time and effort for each book that ends up on the list, and that costs overhead dollars too.)

One of the young publishers my father mentored was Tom McCormack, who — a decade after Len worked with him — became the CEO of St. Martin’s Press. There, McCormack applied Len’s insight with a vengeance, increasing St. Martin’s title output steadily over time. And, just as Len would have expected they would, St. Martin’s profits grew as well.

All of this was taking place in a book retailing world that was still dominated by stores making stocking decisions independently from most other stores. In the 1970s, the two big chains (Walden and B. Dalton) accounted for about 20 percent of the book trade. The other 80 percent was comprised of nearly as many decision-makers as there were outlets. So while it took a really concerted effort (or a very high-profile book or author) to get a title in every possible store location, just about every book went into quite a few. With five thousand individuals making the decision about which books to take, even a small minority of the buyers could put a book into 500 or 1000 stores.

But two big things have conspired to change that reality. The larger one is the consolidation of the retail trade. Now there are substantially fewer than 1000 decision-makers that matter. Amazon is half the sales. Barnes & Noble is probably in the teens. Publishers tell us that there are about 500 independent stores that are significant and that all the indies combined add up to 6 to 8 percent of the retail potential. The balance of the trade — about 25 percent — is the wholesalers, libraries, and specialty accounts. The wholesalers are feeding the entire ecosystem, but the libraries and specialty accounts are both very much biased as to the books they take and very unevenly covered by the publishers. In any case, ten percent of the indie bookstores today gets you 50 on-sale points, not 500. That’s a big difference.

The other thing that has happened is that the houses are much better organized about which books they are “getting behind”. This has the beneficial effect of making sure the books seen to have the biggest potential get full distribution. But it also has the impact of reducing the chances that the “other” books will get full attention from Barnes & Noble (able to deliver more outlets with a single buyer than one would customarily get from the entire indie store network). And, without that, it takes a lot of luck or online discovery to rescue a book from oblivion.

The agent who was confirming my sense of these things agreed that the big houses used to be able to count on a sale of 1500 or 2000 copies for just about any title they published. Now it is not uncommon for books to sell in the very low triple digits, even on a big publisher’s list.

Even before any overhead charge and with a paltry advance, that isn’t going to cover a house’s cost of publication. So there definitely are books today — lots of books — coming from major houses that are not recovering even their direct costs.

This is a fundamental change in big publisher economics from what it was two decades ago. While the potential wins have become exponentially bigger than they were in bygone days, the losses have become increasingly common. And while it is still an open question how well anybody can predict sales for a book that isn’t even written yet (which is the case for most books publishers acquire), there is a real cost to getting it wrong, even when the advance being paid is minimal.

So it is no longer irrational to cut the list and focus. Obviously, every book published is a lottery ticket for a big win, and the odds in a lottery are never good. But the world most general trade publishers have long believed in, where the big hits pay for the rest of the books, is really now the one they inhabit.

I am proud to be part of the organizing committee for Publishing People for Hillary. We’re staging a fundraiser for her in midtown Manhattan on Friday, September 30, at which Senator Cory Booker and Senator Amy Klobuchar will be the featured speakers. You can sign up to join us here. Contribution levels for the event range from $250 to $2500, with a special opportunity to meet the Senators at the higher levels.